INTERNATIONAL PUBLIC SECTOR

ACCOUNTING STANDARDS

IPSAS 12—INVENTORIES
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 IPSAS 12—INVENTORIES
Acknowledgment
This International Public Sector Accounting Standard (IPSAS) is drawn primarily
from International Accounting Standard (IAS) 2 (Revised 2003), Inventories,
published by the International Accounting Standards Board (IASB). Extracts
from IAS 2 are reproduced in this publication of the International Public Sector
Accounting Standards Board (IPSASB) of the International Federation of
Accountants (IFAC) with the permission of the International Financial Reporting
Standards (IFRS) Foundation.
The approved text of the International Financial Reporting Standards (IFRSs) is
that published by the IASB in the English language, and copies may be obtained
directly from IFRS Publications Department, First Floor, 30 Cannon Street, London
EC4M 6XH, United Kingdom.
E-mail: publications@ifrs.org
Internet: www.ifrs.org
IFRSs, IASs, Exposure Drafts, and other publications of the IASB are copyright of
the IFRS Foundation.
“IFRS,” “IAS,” “IASB,” “IFRS Foundation,” “International Accounting
Standards,” and “International Financial Reporting Standards” are trademarks of
the IFRS Foundation and should not be used without the approval of the IFRS
Foundation.

391 IPSAS 12

 IPSAS 12—INVENTORIES
History of IPSAS
This version includes amendments resulting from IPSASs issued up to
January 31, 2018.
IPSAS 12, Inventories was issued in July 2001.
In December 2006 the IPSASB issued a revised IPSAS 12.
Since then, IPSAS 12 has been amended by the following IPSASs:
●● The Applicability of IPSASs (issued April 2016)
●● Improvements to IPSASs 2015 (issued April 2016)
●● IPSAS 33, First-time Adoption of Accrual Basis International Public Sector
Accounting Standards (IPSASs) (issued January 2015)
●● Improvements to IPSASs 2011 (issued October 2011)
●● IPSAS 29, Financial Instruments: Recognition and Measurement
●● IPSAS 27, Agriculture (issued December 2009)
●● Improvements to IPSASs (issued November 2010)

Table of Amended Paragraphs in IPSAS 12

Paragraph Affected How Affected Affected By

Introduction section Deleted Improvements to IPSASs
October 2011
2 Amended IPSAS 27 December
2009
IPSAS 29 January 2010
4 Deleted The Applicability of
IPSASs April 2016
5 Deleted The Applicability of
IPSASs April 2016
12 Amended Improvements to IPSASs
April 2016
14A New Improvements to IPSASs
April 2016

IPSAS 12 392
Paragraph Affected How Affected Affected By
15 Amended Improvements to IPSASs
November 2010
29 Amended IPSAS 27 December
2009
33 Amended Improvements to IPSASs
November 2010
51A New IPSAS 27 December
2009
51B New IPSAS 33 January 2015
51C New Improvements to IPSASs
April 2016
51D New The Applicability of
IPSASs April 2016
52 Amended IPSAS 33 January 2015

393 IPSAS 12

 December 2006

IPSAS 12—INVENTORIES
CONTENTS
Paragraph
Objective............................................................................................................. 1
Scope................................................................................................................... 2–8
Definitions........................................................................................................... 9–14

Net Realizable Value................................................................................... 10

Inventories................................................................................................... 11–14
Measurement of Inventories............................................................................... 15–43
Cost of Inventories....................................................................................... 18–31
Costs of Purchase................................................................................. 19
Costs of Conversion............................................................................. 20–23
Other Costs........................................................................................... 24–27
Cost of Inventories of a Service Provider............................................. 28
Cost of Agricultural Produce Harvested from Biological Assets......... 29
Techniques for the Measurement of Cost............................................. 30–31
Cost Formulas.............................................................................................. 32–37
Net Realizable Value.................................................................................... 38–42
Distributing Goods at No Charge or for a Nominal Charge........................ 43
Recognition as an Expense................................................................................. 44–46
Disclosure........................................................................................................... 47–50
Effective Date..................................................................................................... 51–52
Withdrawal of IPSAS 12 (2001)......................................................................... 53
Basis for Conclusions
Comparison with IAS 2

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 INVENTORIES

International Public Sector Accounting Standard 12, Inventories, is set out in

paragraphs 1–53. All the paragraphs have equal authority. IPSAS 12 should be
read in the context of its objective, the Basis for Conclusions, the Preface to
International Public Sector Accounting Standards, and the Conceptual Framework
for General Purpose Financial Reporting by Public Sector Entities. IPSAS 3,
Accounting Policies, Changes in Accounting Estimates and Errors, provides a basis
for selecting and applying accounting policies in the absence of explicit guidance.

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 INVENTORIES

Objective
1. The objective of this Standard is to prescribe the accounting treatment for
inventories. A primary issue in accounting for inventories is the amount of
cost to be recognized as an asset and carried forward until the related revenues
are recognized. This Standard provides guidance on the determination of cost
and its subsequent recognition as an expense, including any write-down to
net realizable value. It also provides guidance on the cost formulas that are
used to assign costs to inventories.

Scope
2. An entity that prepares and presents financial statements under the
accrual basis of accounting shall apply this Standard in accounting for
all inventories except:
(a) Work-in-progress arising under construction contracts, including
directly related service contracts (see IPSAS  11, Construction
Contracts);
(b) Financial instruments (see IPSAS  28, Financial Instruments:
Presentation and IPSAS  29, Financial Instruments: Recognition
and Measurement);
(c) Biological assets related to agricultural activity and agricultural
produce at the point of harvest (see IPSAS 27, Agriculture); and
(d) Work-in-progress of services to be provided for no or nominal
consideration directly in return from the recipients.
3. This Standard does not apply to the measurement of inventories held by:
(a) Producers of agricultural and forest products, agricultural
produce after harvest, and minerals and mineral products, to the
extent that they are measured at net realizable value in accordance
with well-established practices in those industries. When such
inventories are measured at net realizable value, changes in that
value are recognized in surplus or deficit in the period of the
change; and
(b) Commodity broker-traders who measure their inventories at fair
value less costs to sell. When such inventories are measured at fair
value less costs to sell, changes in fair value less costs to sell are
recognized in surplus or deficit in the period of the change.
4. [Deleted]
5. [Deleted]

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 INVENTORIES

6. The inventories referred to in paragraph 2(d) are not encompassed by IAS 2,

Inventories, and are excluded from the scope of this Standard because they
involve specific public sector issues that require further consideration.
7. The inventories referred to in paragraph 3(a) are measured at net realizable
value at certain stages of production. This occurs, for example, (a) when
agricultural crops have been harvested or minerals have been extracted and
sale is assured under a forward contract or a government guarantee, or (b)
when an active market exists and there is a negligible risk of failure to sell.
These inventories are excluded only from the measurement requirements of
this Standard.
8. Broker-traders are those who buy or sell commodities for others or on their
own account. The inventories referred to in paragraph 3(b) are principally
acquired with the purpose of selling in the near future and generating a surplus
from fluctuations in price or broker-traders’ margin. When these inventories
are measured at fair value less costs to sell, they are excluded only from the
measurement requirements of this Standard.

Definitions
9. The following terms are used in this Standard with the meanings
specified:
Current replacement cost is the cost the entity would incur to acquire the
asset on the reporting date.
Inventories are assets:
(a) In the form of materials or supplies to be consumed in the
production process;
(b) In the form of materials or supplies to be consumed or distributed
in the rendering of services;
(c) Held for sale or distribution in the ordinary course of operations;
or
(d) In the process of production for sale or distribution.
Net realizable value is the estimated selling price in the ordinary course
of operations, less the estimated costs of completion and the estimated
costs necessary to make the sale, exchange, or distribution.
Terms defined in other IPSASs are used in this Standard with the same
meaning as in those Standards, and are reproduced in the Glossary of
Defined Terms published separately.

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 INVENTORIES

Net Realizable Value

10. Net realizable value refers to the net amount that an entity expects to realize
from the sale of inventory in the ordinary course of operations. Fair value
reflects the amount for which the same inventory could be exchanged
between knowledgeable and willing buyers and sellers in the marketplace.
The former is an entity-specific value; the latter is not. Net realizable value
for inventories may not equal fair value less costs to sell.

Inventories
11. Inventories encompass goods purchased and held for resale including, for
example, merchandise purchased by an entity and held for resale, or land
and other property held for sale. Inventories also encompass finished goods
produced, or work-in-progress being produced, by the entity. Inventories also
include (a) materials and supplies awaiting use in the production process, and
(b) goods purchased or produced by an entity, which are for distribution to
other parties for no charge or for a nominal charge, for example, educational
books produced by a health authority for donation to schools. In many public
sector entities, inventories will relate to the provision of services rather than
goods purchased and held for resale or goods manufactured for sale. In the
case of a service provider, inventories include the costs of the service, as
described in paragraph 28, for which the entity has not yet recognized the
related revenue (guidance on recognition of revenue can be found in IPSAS
9, Revenue from Exchange Transactions.)
12. Inventories in the public sector may include:
(a) Military inventories;
(b) Consumable stores;
(c) Maintenance materials;
(d) Spare parts for plant and equipment, other than those dealt with in
standards on Property, Plant and Equipment;
(e) Strategic stockpiles (for example, energy reserves);
(f) Stocks of unissued currency;
(g) Postal service supplies held for sale (for example, stamps);
(h) Work-in-progress, including:
(i) Educational/training course materials; and
(ii) Client services (for example, auditing services), where those
services are sold at arm’s length prices; and
(i) Land/property held for sale.

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 INVENTORIES

13. Where the government controls the rights to create and issue various assets,
including postal stamps and currency, these items of inventory are recognized
as inventories for the purposes of this Standard. They are not reported at face
value, but measured in accordance with paragraph 15, that is, at their printing
or minting cost.
14. When a government maintains strategic stockpiles of various reserves, such
as energy reserves (for example, oil), for use in emergency or other situations
(for example, natural disasters or other civil defense emergencies), these
stockpiles are recognized as inventories for the purposes of this Standard and
treated accordingly.
14A. Military inventories consist of single-use items, such as ammunition, missiles,
rockets and bombs delivered by weapons or weapons systems. However,
some types of missiles may be accounted for in accordance with IPSAS 17,
Property, Plant, and Equipment, if they satisfy the criteria to be classified in
that standard.

Measurement of Inventories
15. Inventories shall be measured at the lower of cost and net realizable
value, except where paragraph 16 or paragraph 17 applies.
16. Where inventories are acquired through a non-exchange transaction,
their cost shall be measured at their fair value as at the date of acquisition.
17. Inventories shall be measured at the lower of cost and current replacement
cost where they are held for:
(a) Distribution at no charge or for a nominal charge; or
(b) Consumption in the production process of goods to be distributed
at no charge or for a nominal charge.

Cost of Inventories
18. The cost of inventories shall comprise all costs of purchase, costs of
conversion, and other costs incurred in bringing the inventories to their
present location and condition.

Costs of Purchase
19. The costs of purchase of inventories comprise (a) the purchase price, (b)
import duties and other taxes (other than those subsequently recoverable by
the entity from the taxing authorities), and (c) transport, handling, and other
costs directly attributable to the acquisition of finished goods, materials, and
supplies. Trade discounts, rebates, and other similar items are deducted in
determining the costs of purchase.

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 INVENTORIES

Costs of Conversion
20. The costs of converting work-in-progress inventories into finished goods
inventories are incurred primarily in a manufacturing environment. The
costs of conversion of inventories include costs directly related to the units
of production, such as direct labor. They also include a systematic allocation
of fixed and variable production overheads that are incurred in converting
materials into finished goods. Fixed production overheads are those indirect
costs of production that remain relatively constant regardless of (a) the volume
of production, such as depreciation and maintenance of factory buildings
and equipment, and (b) the cost of factory management and administration.
Variable production overheads are those indirect costs of production that vary
directly, or nearly directly, with the volume of production, such as indirect
materials and indirect labor.
21. The allocation of fixed production overheads to the costs of conversion is
based on the normal capacity of the production facilities. Normal capacity is
the production expected to be achieved on average over a number of periods or
seasons under normal circumstances, taking into account the loss of capacity
resulting from planned maintenance. The actual level of production may
be used if it approximates normal capacity. The amount of fixed overhead
allocated to each unit of production is not increased as a consequence of
low production or idle plant. Unallocated overheads are recognized as an
expense in the period in which they are incurred. In periods of abnormally
high production, the amount of fixed overhead allocated to each unit of
production is decreased, so that inventories are not measured above cost.
Variable production overheads are allocated to each unit of production on the
basis of the actual use of the production facilities.
22. For example, the allocation of costs, both fixed and variable, incurred in the
development of undeveloped land held for sale into residential or commercial
landholdings could include costs relating to landscaping, drainage, pipe
laying for utility connection, etc.
23. A production process may result in more than one product being produced
simultaneously. This is the case, for example, when joint products are
produced or when there is a main product and a by-product. When the costs of
conversion of each product are not separately identifiable, they are allocated
between the products on a rational and consistent basis. The allocation may
be based, for example, on the relative sales value of each product either at
the stage in the production process when the products become separately
identifiable, or at the completion of production. Most by-products, by their
nature, are immaterial. When this is the case, they are often measured at
net realizable value, and this value is deducted from the cost of the main
product. As a result, the carrying amount of the main product is not materially
different from its cost.

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 INVENTORIES

Other Costs
24. Other costs are included in the cost of inventories only to the extent that
they are incurred in bringing the inventories to their present location and
condition. For example, it may be appropriate to include non-production
overheads or the costs of designing products for specific customers in the
cost of inventories.
25. Examples of costs excluded from the cost of inventories and recognized as
expenses in the period in which they are incurred are:
(a) Abnormal amounts of wasted materials, labor, or other production
costs;
(b) Storage costs, unless those costs are necessary in the production
process before a further production stage;
(c) Administrative overheads that do not contribute to bringing inventories
to their present location and condition; and
(d) Selling costs.
26. IPSAS 5, Borrowing Costs, identifies limited circumstances where borrowing
costs are included in the cost of inventories.
27. An entity may purchase inventories on deferred settlement terms. When
the arrangement effectively contains a financing element, that element, for
example a difference between the purchase price for normal credit terms and
the amount paid, is recognized as interest expense over the period of the
financing.

Cost of Inventories of a Service Provider

28. To the extent that service providers have inventories (except those referred
to in paragraph 2(d)), they measure them at the costs of their production.
These costs consist primarily of the labor and other costs of personnel
directly engaged in providing the service, including supervisory personnel
and attributable overheads. The costs of labor not engaged in providing the
service are not included. Labor and other costs relating to sales and general
administrative personnel are not included, but are recognized as expenses in
the period in which they are incurred. The cost of inventories of a service
provider does not include surplus margins or non-attributable overheads that
are often factored into prices charged by service providers.

Cost of Agricultural Produce Harvested from Biological Assets

29. In accordance with IPSAS 27, inventories comprising agricultural produce
that an entity has harvested from its biological assets shall be measured on
initial recognition at their fair value less costs to sell at the point of harvest.
This is the cost of the inventories at that date for application of this Standard.

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 INVENTORIES

Techniques for the Measurement of Cost

30. Techniques for the measurement of the cost of inventories, such as the
standard cost method or the retail method, may be used for convenience if
the results approximate cost. Standard costs take into account normal levels
of materials and supplies, labor, efficiency, and capacity utilization. They are
regularly reviewed and, if necessary, revised in the light of current conditions.
31. Inventories may be transferred to the entity by means of a non-exchange
transaction. For example, an international aid agency may donate medical
supplies to a public hospital in the aftermath of a natural disaster. Under
such circumstances, the cost of inventory is its fair value as at the date it is
acquired.

Cost Formulas
32. The cost of inventories of items that are not ordinarily interchangeable,
and goods or services produced and segregated for specific projects, shall
be assigned by using specific identification of their individual costs.
33. Specific identification of costs means that specific costs are attributed to
identified items of inventory. This is an appropriate treatment for items that
are segregated for a specific project, regardless of whether they have been
bought or produced. However, specific identification of costs is inappropriate
when there are large numbers of items of inventory that are ordinarily
interchangeable. In such circumstances, the method of selecting those items
that remain in inventories could be used to obtain predetermined effects on
the surplus or deficit for the period.
34. When applying paragraph 33 an entity shall use the same cost formula for
all inventories having similar nature and use to the entity. For inventories
with different nature or use (for example, certain commodities used in
one segment and the same type of commodities used in another segment),
different cost formulas may be justified. A difference in geographical
location of inventories (and in the respective tax rules), by itself, is not
sufficient to justify the use of different cost formulas.
35. The cost of inventories, other than those dealt with in paragraph  32,
shall be assigned by using the first-in, first-out (FIFO) or weighted
average cost formulas. An entity shall use the same cost formula for all
inventories having a similar nature and use to the entity. For inventories
with a different nature or use, different cost formulas may be justified.
36. For example, inventories used in one segment may have a use to the entity
different from the same type of inventories used in another segment. However,
a difference in geographical location of inventories, by itself, is not sufficient
to justify the use of different cost formulas.

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 INVENTORIES

37. The FIFO formula assumes that the items of inventory that were purchased
first are sold first, and consequently the items remaining in inventory at the
end of the period are those most recently purchased or produced. Under the
weighted average cost formula, the cost of each item is determined from the
weighted average of the cost of similar items at the beginning of a period,
and the cost of similar items purchased or produced during the period. The
average may be calculated on a periodic basis, or as each additional shipment
is received, depending upon the circumstances of the entity.

Net Realizable Value

38. The cost of inventories may not be recoverable if those inventories are
damaged, if they have become wholly or partially obsolete, or if their selling
prices have declined. The cost of inventories may also not be recoverable
if the estimated costs of completion or the estimated costs to be incurred
to make the sale, exchange, or distribution have increased. The practice of
writing inventories down below cost to net realizable value is consistent with
the view that assets are not to be carried in excess of the future economic
benefits or service potential expected to be realized from their sale, exchange,
distribution, or use.
39. Inventories are usually written down to net realizable value on an item by
item basis. In some circumstances, however, it may be appropriate to group
similar or related items. This may be the case with items of inventory that
have similar purposes or end uses, and cannot practicably be evaluated
separately from other items in that product line. It is not appropriate to write
down inventories based on a classification of inventory, for example, finished
goods, or all the inventories in a particular operation or geographical segment.
Service providers generally accumulate costs in respect of each service for
which a separate selling price is charged. Therefore, each such service is
treated as a separate item.
40. Estimates of net realizable value also take into consideration the purpose
for which the inventory is held. For example, the net realizable value of the
quantity of inventory held to satisfy firm sales or service contracts is based
on the contract price. If the sales contracts are for less than the inventory
quantities held, the net realizable value of the excess is based on general selling
prices. Guidance on the treatment of provisions or contingent liabilities, such
as those arising from firm sales contracts in excess of inventory quantities
held, and on firm purchase contracts can be found in IPSAS 19, Provisions,
Contingent Liabilities and Contingent Assets.
41. Materials and other supplies held for use in the production of inventories are
not written down below cost if the finished products in which they will be
incorporated are expected to be sold, exchanged, or distributed at or above
cost. However, when a decline in the price of materials indicates that the cost
of the finished products exceeds net realizable value, the materials are written

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 INVENTORIES

down to net realizable value. In such circumstances, the replacement cost of

the materials may be the best available measure of their net realizable value.
42. A new assessment is made of net realizable value in each subsequent period.
When the circumstances that previously caused inventories to be written down
below cost no longer exist, or when there is clear evidence of an increase in
net realizable value because of changed economic circumstances, the amount
of the write-down is reversed (i.e., the reversal is limited to the amount of the
original write-down) so that the new carrying amount is the lower of the cost
and the revised net realizable value. This occurs, for example, when an item
of inventory that is carried at net realizable value because its selling price
has declined, is still on hand in a subsequent period and its selling price has
increased.

Distributing Goods at No Charge or for a Nominal Charge

43. A public sector entity may hold inventories whose future economic benefits
or service potential are not directly related to their ability to generate net
cash inflows. These types of inventories may arise when a government
has determined to distribute certain goods at no charge or for a nominal
amount. In these cases, the future economic benefits or service potential
of the inventory for financial reporting purposes is reflected by the amount
the entity would need to pay to acquire the economic benefits or service
potential if this was necessary to achieve the objectives of the entity. Where
the economic benefits or service potential cannot be acquired in the market,
an estimate of replacement cost will need to be made. If the purpose for
which the inventory is held changes, then the inventory is valued using the
provisions of paragraph 15.

Recognition as an Expense
44. When inventories are sold, exchanged, or distributed, the carrying
amount of those inventories shall be recognized as an expense in the
period in which the related revenue is recognized. If there is no related
revenue, the expense is recognized when the goods are distributed or the
related service is rendered. The amount of any write-down of inventories
and all losses of inventories shall be recognized as an expense in the
period the write-down or loss occurs. The amount of any reversal of
any write-down of inventories shall be recognized as a reduction in the
amount of inventories recognized as an expense in the period in which
the reversal occurs.
45. For a service provider, the point when inventories are recognized as expenses
normally occurs when services are rendered, or upon billing for chargeable
services.
46. Some inventories may be allocated to other asset accounts, for example,
inventory used as a component of self-constructed property, plant, or

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 INVENTORIES

equipment. Inventories allocated to another asset in this way are recognized

as an expense during the useful life of that asset.

Disclosure
47. The financial statements shall disclose:
(a) The accounting policies adopted in measuring inventories,
including the cost formula used;
(b) The total carrying amount of inventories and the carrying amount
in classifications appropriate to the entity;
(c) The carrying amount of inventories carried at fair value less costs
to sell;
(d) The amount of inventories recognized as an expense during the
period;
(e) The amount of any write-down of inventories recognized as an
expense in the period in accordance with paragraph 42;
(f) The amount of any reversal of any write-down that is recognized in
the statement of financial performance in the period in accordance
with paragraph 42;
(g) The circumstances or events that led to the reversal of a write-
down of inventories in accordance with paragraph 42; and
(h) The carrying amount of inventories pledged as security for
liabilities.
48. Information about the carrying amounts held in different classifications of
inventories and the extent of the changes in these assets is useful to financial
statement users. Common classifications of inventories are merchandise,
production supplies, materials, work-in-progress, and finished goods. The
inventories of a service provider may be described as work-in-progress.
49. The amount of inventories recognized as an expense during the period consists
of (a) those costs previously included in the measurement of inventory that
has now been sold, exchanged, or distributed, and (b) unallocated production
overheads and abnormal amounts of production costs of inventories. The
circumstances of the entity may also warrant the inclusion of other costs,
such as distribution costs.
50. Some entities adopt a format for surplus or deficit that results in amounts
being disclosed other than the cost of inventories recognized as an expense
during the period. Under this format, an entity presents an analysis of
expenses using a classification based on the nature of expenses. In this case,
the entity discloses the costs recognized as an expense for (a) raw materials

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 INVENTORIES

and consumables, (b) labor costs, and (c) other costs, together with the
amount of the net change in inventories for the period.

Effective Date
51. An entity shall apply this Standard for annual financial statements
covering periods beginning on or after January 1, 2008. Earlier
application is encouraged. If an entity applies this Standard for a period
beginning before January 1, 2008, it shall disclose that fact.
51A. IPSAS 27 amended paragraph 29. An entity shall apply that amendment
for annual financial statements covering periods beginning on or after
April 1, 2011. If an entity applies IPSAS 27 for a period beginning before
April 1, 2011, the amendment shall also be applied for that earlier period.
51B. Paragraph 52 was amended by IPSAS 33, First-time Adoption of Accrual
Basis International Public Sector Accounting Standards (IPSASs) issued
in January 2015. An entity shall apply that amendment for annual
financial statements covering periods beginning on or after January 1,
2017. Earlier application is permitted. If an entity applies IPSAS 33 for
a period beginning before January 1, 2017, the amendment shall also be
applied for that earlier period.
51C. Paragraph 12 was amended and paragraph 14A was added by
Improvements to IPSASs 2015, issued in April 2016. An entity shall apply
those amendments for annual financial statements covering periods
beginning on or after January 1, 2017. Earlier application is encouraged.
If an entity applies the amendments for a period beginning before
January 1, 2017, it shall disclose that fact.
51D. Paragraphs 4 and 5 were deleted by The Applicability of IPSASs, issued in
April 2016. An entity shall apply those amendments for annual financial
statements covering periods beginning on or after January 1, 2018.
Earlier application is encouraged. If an entity applies the amendments
for a period beginning before January 1, 2018, it shall disclose that fact.
52. When an entity adopts the accrual basis IPSASs of accounting as defined in
IPSAS 33, First-time Adoption of Accrual Basis International Public Sector
Accounting Standards (IPSASs) for financial reporting purposes subsequent
to this effective date, this Standard applies to the entity’s annual financial
statements covering periods beginning on or after the date of adoption of
IPSASs.

Withdrawal of IPSAS 12 (2001)

53. This Standard supersedes IPSAS 12, Inventories, issued in 2001.

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Basis for Conclusions

This Basis for Conclusions accompanies, but is not part of, IPSAS 12.
Background
BC1. The IPSASB’s IFRS Convergence Program is an important element in the
IPSASB’s work program. The IPSASB’s policy is to converge the accrual
basis IPSASs with IFRSs issued by the IASB where appropriate for public
sector entities.
BC2. Accrual basis IPSASs that are converged with IFRSs maintain the
requirements, structure, and text of the IFRSs, unless there is a public sector-
specific reason for a departure. Departure from the equivalent IFRS occurs
when requirements or terminology in the IFRS are not appropriate for the
public sector, or when inclusion of additional commentary or examples is
necessary to illustrate certain requirements in the public sector context.
Differences between IPSASs and their equivalent IFRSs are identified in the
Comparison with IFRS included in each IPSAS.
BC3. In May 2002, the IASB issued an exposure draft of proposed amendments
to 13 IASs1 as part of its General Improvements Project. The objectives
of the IASB’s General Improvements Project were “to reduce or eliminate
alternatives, redundancies and conflicts within the Standards, to deal with
some convergence issues and to make other improvements.” The final IASs
were issued in December 2003.
BC4. IPSAS 12, issued in July 2001, was based on IAS 2 (Revised 1993),
Inventories, which was reissued in December 2003. In late 2003, the
IPSASB’s predecessor, the Public Sector Committee (PSC),2 actioned an
IPSAS improvements project to converge, where appropriate, IPSASs with
the improved IASs issued in December 2003.
BC5. The IPSASB reviewed the improved IAS 2 and generally concurred with
the IASB’s reasons for revising the IAS and with the amendments made.
(The IASB’s Bases for Conclusions are not reproduced here. Subscribers
to the IASB’s Comprehensive Subscription Service can view the Bases for
Conclusions on the IASB’s website at http://www.iasb.org). In those cases
where the IPSAS departs from its related IAS, the Basis for Conclusions
explains the public sector-specific reasons for the departure.

1
The International Accounting Standards (IASs) were issued by the IASB’s predecessor, the
International Accounting Standards Committee. The Standards issued by the IASB are entitled
International Financial Reporting Standards (IFRSs). The IASB has defined IFRSs to consist of
IFRSs, IASs, and Interpretations of the Standards. In some cases, the IASB has amended, rather than
replaced, the IASs, in which case the old IAS number remains.
2
The PSC became the IPSASB when the IFAC Board changed the PSC’s mandate to become an
independent standard-setting board in November 2004.

407 IPSAS 12 BASIS FOR CONCLUSIONS

 INVENTORIES

BC6. IAS 2 has been further amended as a consequence of IFRSs issued after
December 2003. IPSAS 12 does not include the consequential amendments
arising from IFRSs issued after December 2003. This is because the
IPSASB has not yet reviewed and formed a view on the applicability of the
requirements in those IFRSs to public sector entities.

Revision of IPSAS 12 as a result of Part III of Improvements to IPSASs 2015:

issues raised by stakeholders
BC7. Government Finance Statistics (GFS) reporting guidelines use the term
“military inventories” to comprise all single-use items, including ammunition.
The IPSASB concluded that replacing the IPSAS term “ammunition” with
the GFS term “military inventories” and including a description will clarify
the types of military assets that are to be classified as inventories, while
increasing consistency with GFS reporting guidelines.

Revision of IPSAS 12 as a result of the IPSASB’s The Applicability of IPSASs,

issued in April 2016
BC8. The IPSASB issued The Applicability of IPSASs in April 2016. This
pronouncement amends references in all IPSASs as follows:
(a) Removes the standard paragraphs about the applicability of IPSASs
to “public sector entities other than GBEs” from the scope section of
each Standard;
(b) Replaces the term “GBE” with the term “commercial public sector
entities”, where appropriate; and
(c) Amends paragraph 10 of the Preface to International Public Sector
Accounting Standards by providing a positive description of public
sector entities for which IPSASs are designed.
The reasons for these changes are set out in the Basis for Conclusions to
IPSAS 1.

IPSAS 12 BASIS FOR CONCLUSIONS 408

 INVENTORIES

Comparison with IAS 2

IPSAS 12, Inventories is drawn primarily from IAS 2, Inventories (Revised 2003).
The main differences between IPSAS 12 and IAS 2 are as follows:
●● IPSAS 12 uses a different definition from IAS 2; the difference recognizes
that in the public sector some inventories are distributed at no charge or for
a nominal charge.
●● IPSAS 12 clarifies that work-in-progress of services that are to be distributed
for no or nominal consideration directly in return from the recipients are
excluded from the scope of the Standard.
●● A definition of current replacement cost, which is additional to the definitions
in IAS 2, has been included in IPSAS 12.
●● IPSAS 12 requires that where inventories are acquired through a non-
exchange transaction, their cost is their fair value as at the date of acquisition.
●● IPSAS 12 requires that where inventories are provided at no charge or for
a nominal charge, they are to be valued at the lower of cost and current
replacement cost.
●● IPSAS 12 uses different terminology, in certain instances, from IAS 2. The
most significant example is the use of the terms “statement of financial
performance” in IPSAS 12. The equivalent term in IAS 2 is “income
statement.”
●● IPSAS 12 does not use the term “income,” which in IAS 2 has a broader
meaning than the term “revenue.”

409 IPSAS 12 COMPARISON WITH IAS 2